THE COVID-19 PANDEMIC AND STOCK MARKET PERFORMANCE: EVIDENCE FROM INDIA

Abstract

Purpose -The purpose of this paper is to examine the impact of COVID-19 on NSE sectoral indices. Design/methodology/approach -The performance of the stock market indices is evaluated using the event study methodology. The estimation window (-158, -29) comprises of 130 days and used to estimate the abnormal returns pre and post COVID-19 outbreak. We divided the whole event window into four small event windows such as short event window (0, 9), lockdown phase 1 (10, 20), lockdown phase 2 (21, 32), lockdown phase 3 (33, 39). Findings -Our results of the pre-event window and short event window support the negative impact of COVID-19 outbreak on stock market indices’ performance. The COVID-19 outbreak hurts the sentiments of investors and increase the investment fear that causes panic selling among investors. The results of event windows lockdown phase 1 and phase 2 reveal that the indices outperform in these phases which suggests that the stock market welcomes the implementation of a nationwide lockdown to prevent the outbreak of coronavirus. In the great uncertainty of COVID-19 outbreak and its associated financial and non-financial losses increase the high volatility in the stock markets. Therefore, stock market indices underperform in lockdown phase 3 and phase 4. Finally, this study is an evident that the COVID-19 pandemic badly affected the performance of all sectoral indices. Originality/value–To the best of authors’ knowledge, this paper is one of the first papers of its kind which examines the impact of COVID-19 outbreak on stock market sector-wise indices in India. Research limitations/implications– In the great uncertainty of the COVID-19 outbreak, stock market regulators and the central bank could intervene to revive the confidence of stock market participants. Findings of the study suggest that investors could adapt the long term investment strategy in weaken market conditions and the response would be to buy the stocks. Future researchers could examine the herd behavior in the stock market participants in the pandemic conditions.